First a Quick Poll Do you Think Appraisers Should See a Purchase Contract Before Appraising a home?
I recently helped a family get into a beautiful home over in the Val Vista Lakes community. The home is 2911 St, two story with 4 bedrooms, 3 full bathrooms and a loft. The home Was listed at $330,000 and with my help and negotiation skills we were able to get the seller down to $310,000 for the sales price with $1,500 paid towards our closing costs. The buyer stated and I quote , “I am as happy as a pig in mud” classic and comical.
So we got off to a good start we were $21,500 below list price. The average home was listed for $133 a sf, we just locked down our contract at a value of $106 a sq ft. There were some minor repairs that needed to be done from when we did our walk through. But we still needed to get into our deep dark home inspection and really break down the integrity of the home.
The DAY OF THE INSPECTION. The home is in pretty good shape except the roof has some minor issues. We got a licensed roofer, well actually 2 roofer’s to come out and inspect the roof more thoroughly. To replace the roof it would be $6,500 dollars, to just make repairs it would be about $1500. ( Yea $6500 to replace the roof, Hit me up if you need a good roofer that is cheap ). So not to big of a deal. We are $21,500 below the list price of the home and $27 below the average price per sq foot for the community. We are still in great shape.
DAY THE APPRAISAL COMES IN – The lender calls me up and says congrats the appraisal came in at the contract price. My response was not excitement. I was not happy with the results and asked the lender to forward me a copy to review. Upon reviewing there was not one comparable that the appraiser used that supported the low $310,000 sale price in fact he used homes that were $20 to $30 thousand dollars more. One was $27 a sq foot more than our property. If you take 2911 sq feet x $27 a sq ft that equals $78,597, just a small difference here, right? Now you may be wondering why I was upset. Well when your client thinks they are getting a great deal and the appraisal only comes back at the purchase price of the home, some buyers get discouraged and want to back out.
Luckily I had explained to the buyers that it was very likely that we would get an appraisal just like the one we received because appraisers now a days are too conservative and worried that the banks will get upset with them if they appraise the home higher. Now this brings me to my thought process, appraisals are supposed to be done by a non biased, licensed 3rd party to the transaction. Well if the appraiser is supposed to come up with the true value of the home, the appraiser should never receive a copy of the purchase contract. They don’t get a contract when they do appraisals for a refinance!
Make sure you educate your clients before hand to help set the expectations so that you don’t have a deal killer later.